The Chairman, Chartered Institute of Bankers of Nigeria, Lagos State Branch, Mr. Abolade Agbola, talks about the challenges of new banking channels and the need to fund the country’s gas infrastructure, in this interview with Oyetunji Abioye
How would you assess the Nigerian banking sector?
I think the banking sector has been restructured and recapitalised and refocused. We have also transited from owner-managed banks to professional-managed banks. None of the banks is being managed by the owners. This implies that corporate governance is being put in place.
Globally, banks generally are volatile because of their operations. You can’t take away that volatility. I think we have a more robust banking structure and they (the banks) are going to get more competitive. In terms of global volatility, I think they would be able to withstand it better than ever before. Quality of services should improve as regulators stay ahead of them, watching over them. I think the future prospect is bright in terms of playing their developmental role, money transmission role, exchange participation role and, of course, in terms of other roles of promoting development.
Do you think banks are doing well in terms of lending?
Lending is still short-term because of the sources of funding; and is still collateral-based. Lending to government has crowded out lending to the private sector in a way. When the banks buy Treasury bills or bonds, they are lending to government, which crowd out lending to the private sector. But I think as the economy gets a little more settled after the crisis, lending is bound to grow because that is the only way the banks can increase their bottom-line. So, they become more creative and able to adapt the lending condition to what people can afford and still promote business.
As the economy gets better and we tackle some of the constraints related with power and infrastructure, definitely, the performance of businesses will improve and lending will become more profitable because what drives lending is actually the ability of businesses to come up with loan-able proposals and being able to repay loans when due.
But when you have an economy that is not stable, then businesses get more precarious and they will not achieve their profitability targets. That’s part of what create bad loans. If the economic variables are stable and people can grow, the economy is growing, then businesses will grow and then ability to meet credit repayment obligation will increase and then banks will be able to extend their services.
There is no doubt that there is need for an improvement in the way our banks spread credit to customers. We still need a lot to do because businesses need credit to acquire plants and equipment to increase their working capital. And it is only the banks that can provide that.
The CBN recently reintroduced ATM charges of N65. Don’t you think this will have negative impact on the cash-less policy and economic growth in general?
Well, the banks have spent a lot of resources in deploying ATM infrastructure, and they have the responsibility to recover their cost. Before the banking consolidation, we had probably less than one hundred ATMs in Nigeria. That was in 2004. Today, in every nook and cranny, you see ATMs deployed and they are still not sufficient.
If you go outside Lagos, you see queues for ATMs. They (the banks) need to be able to recover part of this cost so that there can be an incentive for them to continue to deploy them. The removal of the charges initially affected the banks’ performance. When you talk about banks’ profit, nobody looks at the capital employed or human resources deployed; nobody thinks about the infrastructure they are using to generate these billions.
The return on investment of banks is what we are looking at, not whether it’s in two, three or four billions. I think that is the challenge we don’t face. Yes, when you see the figures, you look at the assets employed, the people engaged to generate this income. I don’t think the banks are doing fantastically too good. In fact, they need to do better because a lot of people invested in the banks and they are expecting returns. And if you really want to give that incentive to continue to deploy ATMs, which is to their own advantage, because what has happened now is that rather than clogging the banking hall, people who want to make withdrawals are now outside, queuing for ATM.
But the truth of it is that this arrangement is even for people who are withdrawing outside their own bank’s ATM and who have done three withdrawals. It’s a marginal fee in terms of payment; you must have done three withdrawals be it applies to you. So, it will also help those who withdraw money not to do so in a frivolous manner and plan their cash flow. I believe that banks must be encouraged to continue to deploy ATMs. I don’t think we have sufficient really, after Lagos. Where you have a lot of queues, the incentive for them to deploy more must never be lost. And so, there should be some compensation for that service.
Electronic fraud is still on the increase and cases of insider collaborators among bank employees are also rising. How do we mitigate this?
Well, unfortunately, we are living in a society which we created for ourselves. The issue of integrity and all the rest in Nigeria is the real cause of all these frauds.
In those days, when people go into banking, they go to make a career but today when you go to any job, people want to make money because their counterpart who has become a local government chairman or a politician is doing fine compared with them that are working 24 hours in the bank. Until we define the value system of our nation from the highest office down, we are going to be having fraud. Nigerians are the people working in the banks doing all these frauds. We are living in a nation we have created for ourselves and that is why integrity should be the watchword, followed by professionalism and ethics.
And that is why the CIBN is trying to ensure that anybody who wants to be a banker is a professional who can be tracked; who has allegiance to the profession; who wants to maintain his integrity. When the banking boom came, all sort of people came into banking – lawyers, doctors, engineers – who have no business in banking. And to me, it’s worrisome the amount of money that people steal through electronic fraud. The banks are trying to build security around all these devices. Definitely, the greatest security is the people, and the society reflects the people. I think we need to find a way to cleanse our society.
There is no justification for it, and what that would do is that people would limit the amount of money or specify the kind of account they expose to online money transaction. And I think the CBN is also insisting that when this issue has happened, it must be resolved speedily so that confidence will not be lost. And that is one of the reasons why banks will keep on changing their software to make it safer and, of course, that is also one of the reasons the issue of National Identity Card needs to be fast-tracked, which is at the government level.
We must have an identity card that identifies the human being with the face, and which will guide every transaction in the society. And that is why the political will to do that must also be there. Every fraud can be traced because the greatest way to check fraud is to know that you can be caught and the system has a lot of checks either through your finger or your face or your contact address. When you see the fraud that happens and the trillions of transactions that take place daily, then I think the banks have to take the technology ahead, then take the staffing ahead and then create a future for the employees so that they can know that they have a future in the organisation; and that they can build a future. This is because people commit fraud when they have short-term view of the future.
Banks financed the privatisation of power sector, but there are challenges in the sector now in terms of getting revenue due to gas-to-power issue and other matters. There are also concerns that the loans might go bad. Don’t you think the Asset Management Company of Nigeria might have to intervene again?
No. The issue of gas-to-power is important but if you look at why we had problems in the power sector, you will discover that it is because we are too reliant on hydro sources of power and we neglected the thermal stations, which use gas. Really, that is the real root of our problems. Unfortunately, we are the largest oil producer in Africa and we are not generating sufficient electricity from gas, which is still part of the reasons why we are relying largely on hydro station and there was investment shortage.
What I think will happen is that there will be an accretion in investment infrastructure. This has to do with gathering these gases from all the oil wells and then using them to produce energy. This will happen instead of the issue of bad loan. I believe that some of those who bought the privatised plants have even increased their production capacity. Yes, there would be a huge demand for gas and the development of gas and basic infrastructure. I think in one or two years, those things could be a thing of the past, for instance, if we have continued peace in the Niger Delta. To us as a people, it is better we get the gas infrastructure in place so that we can power those thermal stations and have uninterrupted power supply. This is the constraint that has been identified and I believe that we have the capacity to deploy resources there. Also, I think banks still have to do more in funding this gas infrastructure, which is critical for uninterrupted power supply in Nigeria.